Rupee slides on euro, importer dollar demand

Mumbai: The rupee posted its biggest drop in 11 sessions on Wednesday, hurt by a retreat in the euro after comments from a German official tempered hopes of a solution to the region’s debt crisis at the European summit on Friday.

Dollar demand from local oil refiners also weighed, while positive domestic equities and recent assurances from the central bank suggesting it would act in case of further sharp declines in the currency contained losses, traders said.

The partially convertible rupee ended at the day’s low of 51.715/725 per dollar, falling 0.6% -- its biggest drop since 21 November -- from Monday’s close of 51.41/42.

Indian foreign exchange markets were shut on Tuesday.

“Although the about turn on foreign investment in retail sector was a major dent for the currency, a lot of the negativity stemming from trade and fiscal deficit has already been factored into the currency,” said Gaurav Garg, Asia foreign exchange and local markets strategist at Citigroup in Singapore.

“So rupee should be well supported around current levels,” he said, adding he expects the rupee to move in a wide band of 50.50 to 53.00 for the rest of the month.

India suspended plans to open its $450 billion supermarket sector to foreign firms such as Wal-Mart Stores Inc, backtracking from one of the government’s boldest reforms in years in the face of a huge political backlash.

However, the Reserve Bank of India has recently announced various steps to boost dollar supply, muting the impact on the outlook for dollar inflows after the government’s decision.

These included easing of overseas borrowing by firms and increasing the ceiling on interest rates for deposits by non-resident Indians.

Despite the German comments, traders expect European leaders to push through concrete steps to deal with the region’s festering debt crisis given the threat of mass credit rating downgrades and pressure from around the world.

Berlin is increasingly pessimistic about the chances of a deal to solve the euro zone debt crisis at this week’s European Union summit, because some governments don’t seem to grasp the gravity of the situation, a German government official said on Wednesday.

Announcement of any firm steps from the EU summit is likely to support riskier assets and currencies like rupee, traders said.

The euro was at $1.3384 at end of rupee trade from $1.3433 on Monday, while the index of the dollar against six major currencies was at 78.602 points from 78.483 previously.

On Saturday, Subir Gokarn, a deputy governor of the RBI, had said the bank will use all available tools to stem a fall in the rupee if the currency’s downward spiral escalates.

The rupee, weighed by a surging oil import bill and widening trade deficit, had touched a record low of 52.73 on 22 November and is the worst performing currency among Asian peers so far this year.

The one-month offshore non-deliverable forward contracts were quoted at 52.09, below the onshore spot rate and indicating a bearish near-term outlook. The one-month onshore forward dollar premium was at 27.75 points from 27.50 on Monday, the three-month was at 69.50 points from 70, and the one-year premium was at 201.50 points from 211.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange at 51.9175, 51.9225 and 51.9200 respectively. The total volume was at $3.72 billion.